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Borough mayor pitches budget plan

Borough Mayor Charlie Pierce speaks to the attendees at a joint luncheon of the Kenai and Soldotna chambers of commerce Wednesday, Feb. 7, 2018 in Kenai, Alaska. Pierce says he plans to fix the borough’s approximately $4 million deficit in the fiscal year 2019 budget without raising taxes or implementing new ones. (Photo by Elizabeth Earl/Peninsula Clarion)

Editor's note: This article has been updated to clarify the borough's education spending and include a statement from Kenai Peninsula Borough School District Superintendent Sean Dusek about the total amount of borough support for the school district.

The proposed solution for the deficit in the Kenai Peninsula Borough’s budget wouldn’t involve raising taxes, but it also means cuts and drawing out of the borough’s assets.

Borough Mayor Charlie Pierce is pitching a budget solution built on a combination of cutting expenses and drawing funds out of the borough’s land trust fund for fiscal year 2019. If it goes through, the combination would patch the approximately $4 million gap in the fiscal year 2018 budget.

“It’s a moving target every day, and we’re doing the best we can,” he said a joint luncheon of the Kenai and Soldotna chambers of commerce on Wednesday. “We have a plan going forward that could carry us through fiscal year 2020, 2021 with the revenue that we have, the savings that we have, and we’re working on the backfill of this so that perhaps we can take (the fund balance) back up into your $20 million plus range, so that if the inevitable happens, we’ll have some funding to take care of it.”

A major part of the cuts in spending will come out of the Kenai Peninsula Borough School District. Pierce is proposing a 1 percent cut in the borough’s contributions to the school district, which is about $497,000. The cash contribution to the school district would remain the same — the cut would come out of the borough’s in-kind contributions through facility maintenance and other support.

All told, the borough contributed about $54.6 million to education in fiscal year 2018, while the cash contribution to the school district was $49.7 million. That’s not funding to the maximum amount allowable, but it’s significantly above the required minimum funding of $29 million.

“You cannot deficit spend and fund to the cap,” he said. “… I think that we should be proud of ourselves as a community. I think the former administration tried to make some changes and create some direction and create some solvency, and I think that we have an opportunity to get on track and to avoid a large train wreck or a small train wreck.”

Kenai Peninsula Borough School District Superintendent Sean Dusek said in an email that the total stated number of $54.6 million included funds for Kenai Peninsula College, debt reimbursement and capital projects, and the $49.7 million includes in-kind services.

Every department in the borough will take a cut in fiscal year 2019, which the administrators have determined in conference with the heads of the departments, Pierce said. There have been a number of retirements at the borough, leaving positions vacant, and they plan not to fill those positions as much as possible, Pierce said. About $250,000 would come out of the Solid Waste Department’s budget. They’re also proposing cutting the annual funding for the borough’s three economic development organizations — often referred to as nondepartmentals — by $115,000.

Altogether, the administration is planning for about $870,000 in cuts to the general fund, he said. Combined with the cuts to the school district contribution, that totals out to about $1.5 million in savings.

To plug the rest of the gap, Pierce said they plan to draw about $3.6 million out of the borough’s approximately $7.5 million land trust fund, and to implement an administrator’s fee for services provided to service areas. The borough provides services such as technology and legal advising to the service area operations free of charge. Pierce said they plan to propose a 2.5 percent administrator’s fee to help offset some of those costs for the borough and spread it out across the service areas.

“It goes unnoticed, but it’s a big job, and it comes at a cost to the borough, to the general fund of the borough,” he said. “In prior budgets, years back when we had $20 million-plus in fund balance, there was decisions made in relation to this expenditure to waive the fee … we’re looking for revenue to pay the bills for services.”

With a set of meetings with service area boards and leaders still to complete, Pierce said the administration plans to present the budget to the assembly by late April in time for the assembly to confirm the school district’s local funding contribution by early May.

It doesn’t include raising any broad taxes right now, though Pierce said the plan was to solve the problem this year and allows the administration and the public to talk about new revenue sources in the future. Pierce said he chose not to pitch new taxes after voters “said no” in the last election to a proposed increase in the cap on taxable sales.

“It allows us to talk about how we come up with new revenue sources going forward,” he said. “It gives you some breathing room. It takes a little bit of the pressure off of the decision-making that needs to be done, takes some of the urgency out of it, and allows us as a community to come together and have a better plan for how we plan to pay for our government in the future.”

To fill the spending gap this year, the borough is drawing out of its fund balance, essentially a savings account. If the borough keeps spending out of its fund balance, estimates show it will be below the required fund balance level within a few years. Pierce said these were estimates and things could change, but he said it was a problem that needed to change.

The proposed fixes are one-time, and if costs continue to increase — personnel costs increase every year, particularly in health care, and inflation pushes other costs up — the borough will be faced with the same issue in the future.

Assembly member Hal Smalley, who attended the luncheon, noted that the proposed budget fix didn’t include any new revenue. He said he was concerned about education funding, especially since the administration had previously said the district would receive flat funding this year.

Assembly President Wayne Ogle, who also attended the luncheon, said he thought the 2.5 percent administrative fee for the service areas was a good idea, especially as the administrative fee has been as high as 6 percent in the past. He also noted that the proposed plan did not include any new revenue and said he thought the administration was aware of and considering that in the future.

“If we (pass the plan) we have to be sure … we’re taking care of FY 19 — are we taking care of FY 2020?” Ogle said.